WisdomeTree Dreyfus Japan Yen ETF (JYF)

Japan already sells more adult than infant diapers, and government estimates show more than 25% of citizens will be over 65 within 2 years, nearly one-in-three within 10 years. The investment implications - from what will drive GDP growth to who will buy the massive amount of government debt - are troubling.

Goldman's Jim O'Neill throws in the towel on his prediction the SNB will raise its CHF 1.20 peg to the euro to CHF 1.25. Having gotten that one wrong, he moves on to the yen, predicting a significant drop in Japanese currency in H2. The euro/franc cross continues to flatline at 1.2010.

Japan's record foreign-exchange intervention last year was effective, says the country's Finance Ministry, adding to speculation that Japan is preparing for another direct intervention in the market. USD flat at ¥78.18. (But did yen intervention actually help?)

"When I go to the gym and there's no freshly washed socks, I take the pair that's relatively clean," says Japan MOF official Chikashisa Sumi, explaining the enduring attractiveness of 10-year JGBs. Foreign ownership of the paper has risen to a record 8.3% of the total outstanding as the 0.75% yield no longer looks so outlandishly low - and if the yen is going to appreciate, the low yield is but a secondary issue.

"The yen's movement is having an impact on exporters and other parts," says Japanese finmin Jun Azumi. "I will take decisive steps against speculative movement of excessive volatility. As far as the current situation is concerned, I'm watching it carefully." Direct market intervention may be coming but the yen isn't responding to the rhetoric: USD -0.54% to ¥78.02.

The euro is +0.1% at $1.2302 after earlier touching a two-year low of $1.2225, with investors pessimistic about the outcome of today's meeting of eurozone finmins despite the unexpected agreements forged at last month's parley of the bloc's leaders. JGBs are seen as a haven, and the price of 10-year Japanese bond futures rise to their highest since October 2010.

Japan is likely to default before Europe does, possibly by 2017, says Takeshi Fujimaki, a former adviser to George Soros. If Japan defaults, the yen could weaken to 400-500 to the dollar and the yields on benchmark 10-year bonds could surge above 80%. He recommends Japanese investors buy assets denominated in U.S. dollars and other strong, developed-nation currencies.

Japan finmin Azumi is the first to hit the wires following the G-7 conference call, and he's talking about how the strong yen is hurting his country's economy. He says the group agreed to work together to cooperate on extreme fx moves. The yen promptly takes a tumble, dollar/yen rising to ¥78.46 from ¥78.25.

Yen bulls feel their oats, pressing bets despite official threats to take measures to weaken the currency. Focusing on the nominal value of the yen is misleading, say strategists. Persistent deflation means dollar/yen would have to fall to ¥55 (from ¥78 today) for the yen to equal its strength of the mid-90s. Meanwhile, the Topix is off 2.2% tonight - if it holds, it will be the lowest close in 3 decades.

Japanese finmin Azumi ups the intervention rhetoric, saying speculators are taking advantage of financial uncertainty in Europe to "conspicuously" drive up the yen. "We'll respond decisively," says Vice finmin Nakao. The dollar made a sharp move higher vs. the yen just after the payroll report, with some speculating Tokyo had a hand.

One more from Einhorn: Greenlight remains (unprofitably) short the yen, but notes a catalyst for maybe making this trade work. Over the next year, 5 of 9 BOJ governors will be replaced, including the Chairman. Noting one nominee has already been rejected as too hawkish, Einhorn sees the slots being filled by a new guard ready to aggressively take action against deflation.

BOJ governor Shirakawa says the bank is committed to easing, but won't do so solely to weaken the yen. Shirakawa adds the "biggest factor affecting currency moves now is investors' risk aversion," and there's no evidence that an expanded monetary base will weaken the currency. Currently: USD -0.13% to ¥79.36.

Here's a cute one: The BOJ asset purchase program stumbled last night when the bank failed to meet its goal of purchasing ¥600B in 1 and 2-year paper as just €480.5B was offered up to be sold. "There is nothing to invest in when (banks) sell short-term notes," says an analyst. Two-year Japanese paper yields 0.11% ... "nothing to invest in."

The government adds the word "promptly" to previous efforts to goad the BOJ into achieving an inflation rate with a plus sign in front of it, according to the latest policy meeting minutes. At least at that meeting (April 9-10), the BOJ resisted the pressure, leaving policy on hold. The yen has strengthened since, the dollar buying ¥79.77 today vs. nearly ¥82 then.

WisdomTree Dreyfus Japanese Yen Fund seeks to earn current income reflective of money market rates available to foreign investors in Japan and to maintain liquidity and preserve capital measured in Japanese Yen.
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